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Beyond Forecasting: Creating New Strategic Narratives

Magazine: Fall 2014Research Feature


September 16, 2014
Sarah Kaplan and Wanda Orlikowski

In turbulent markets, it can be hard for established companies to choose new strategic directions.
But by rethinking the past and present and reimagining the future, managers can construct strategic
narratives that enable innovation.

A recent New York Times digital strategy report drew on the company’s history to frame an
innovative future.

One of the great challenges for organizations in the current economy is making strategy under the
uncertainties posed by turbulent environments, intensified competition, emerging technologies,
shifting customer tastes and regulatory change. Executives often know they must break with the
status quo, but there are few signposts indicating the best way forward.

A core assumption in much of strategic management research is that more accurate forecasts of
future competitive actions or the future value of certain business capabilities will lead to strategic
success.1 Executives have long been exhorted to conduct analyses of internal and external
environments and construct scenarios of the future. However, seeing strategy in this way has some
serious weaknesses. It assumes that accuracy can be achieved through rigorous analysis and
conscientious efforts to overcome individual biases in perception. It also assumes that the process
will be relatively frictionless and primarily analytical.

There is an important tension at work here. Because the future is essentially unknowable, leaders
must rely on the past for information and insight. Moreover, given that the future is unknown, there
are likely to be differences and conflicts within the organization about what that future might hold.
Such conflicts can impede progress on the development and execution of new strategies —
especially innovative strategies that depart significantly from a company’s current approach to the
market.

Studies have pointed to the “abject failure”2 of most forecasting efforts to attain the desired
precision. While strategy researchers tell managers they should project into the future, we tell them
little about how to do this. As observed by an executive at CommCorp (a pseudonym for a
communications technology corporation that we studied in 2002, shortly after the bursting of the
Internet bubble):

Who today in this marketplace has accurate data? I mean, nobody, literally nobody. It is very hard.
You have a gazillion points right now where, you know, everybody — economists, analysts,
companies — fails to forecast accurately … so forecasting is very difficult, or you can say
impossible, because [of the] dramatic change.

To study how managers make strategy in a highly turbulent environment, we took an in-depth look
at five technology strategy projects inside the Advanced Technology Strategy Group at CommCorp.
(See “About the Research.”) Our study aimed to understand how managers make strategy in
conditions of considerable uncertainty. In our research, we followed the five technology strategy
projects closely, from their inception to critical strategic choices about resource allocation. Some of
these projects ended up conforming quite closely to the status quo, making only incremental
changes, while others resulted in radical strategic choices and actions.

About the Research

To understand how strategies actually get made inside organizations, we conducted an eight-month
ethnographic study at a communications technology corporation during a period of tremendous
uncertainty. This company, CommCorp (a pseudonym), specialized in optical technologies and was
facing a crisis created by the bursting of the Internet technology bubble in 2001. Despite the rapid
downturn in the market, optical technologies continued to advance, and CommCorp could not risk
doing nothing. Instead, the company had to find innovative ways to address a market whose future
shape was unpredictable.

To look at the day-to-day processes of strategy making, we followed five technology strategy
projects in the Advanced Technology Strategy group to see how strategic choices were made. Over
the course of our study, it became apparent that the five projects came to embody different visions
of the future that represented greater or lesser degrees of change from the status quo. To understand
these differences, we examined our participants’ views of the strategies as they evolved in their
projects over time.

We collected data over eight months, from April to December 2002. This fieldwork yielded
multiple overlapping sources of data for each of the five projects, including observing daily project
activities at various CommCorp locations; attending 34 formal meetings (from two hours to two
days long); conducting 91 interviews across hierarchical levels and functions; participating in
frequent informal communications, teleconferences, and email exchanges; and collecting
documentation for each project (for example, spreadsheets, presentations, emails, agendas and
minutes of meetings). (Detailed results of our study were reported in an article in Organization
Science.i)

These rich, multifaceted data allowed us to track the evolution of each project, identifying activities
and interpretations over time. In that process, we could observe managers’ struggles to forecast the
future. We also discovered that they could not imagine new futures without rethinking the past and
reconsidering present concerns. A new future could not shape strategic choices unless it was
connected into a narrative that showed its connections with the past and the present. When
managers settled on a particular narrative, they could make choices. But we also saw that
agreements on a narrative were provisional, and sometimes a narrative would break down. In these
cases, choices were more difficult to make, and managers worked to construct new narratives.
Often, the explorations required by breakdowns in narratives led to more innovative solutions that
diverged more sharply from the status quo. These insights led us to construct a model of strategy
making based on how these narratives were constructed and what happens when they break down.

Our study revealed that future projections are intimately tied to interpretations of the past and the
present. Strategy making amid volatility thus involves constructing and reconstructing strategic
narratives that reimagine the past and present in ways that allow the organization to explore
multiple possible futures. In comparing strategy projects within CommCorp, we found that the more
work managers do to create novel strategic narratives, the more likely they are to explore
alternatives that break with the status quo.

In other words, to get to an alternative future, you have to create a story about the past that connects
to it. For instance, The New York Times is working to stay relevant in a landscape where
newspapers are being crowded out. A recently leaked New York Times internal strategy report
focused on a vision of the newspaper’s increasingly digital future. But the report’s authors also
drew on the paper’s past in framing a strategy for the company’s future. In one section of the report,
called “The Paper of Record, Version 2.0,” the report’s authors urged the company to do a better
job of “tagging” its digital content to make it more easily findable. To support their argument, the
authors drew on a historical example about how The New York Times gained a competitive
advantage a century earlier by creating a comprehensive index of the newspaper for libraries and
researchers.3

In introducing new devices in 2012, Amazon.com’s CEO Jeff Bezos presented a strategic narrative
that linked to the company’s past and present e-commerce business.

In that instance, the reimagined past was being used to enable an innovative future — by invoking a
similar successful innovation from the company’s history. But in some cases, a company’s story
about the past dominates and limits the future. For instance, although Amazon.com Inc. has shifted
from being an online store to also producing its own hardware (the Kindle e-reader and, more
recently, the Fire phone), the company linked its device strategy to a story about how these products
make it easier to shop at Amazon.4 Indeed, as critics have pointed out, the design of the new Fire
phone was so shaped by this narrative that one of its few distinctive features is a scanning
technology that allows the user to easily scan an item and link to a buying opportunity at Amazon.
As one commentator noted, this feature of the Fire phone can be “off-putting because it seems like
little more than a way to get people to buy more products from Amazon.”5

Creating New Strategic Narratives

Within the five Advanced Technology Strategy projects at CommCorp that we studied, multiple and
varied interpretations of the future were in play. In comparing the unfolding of CommCorp’s
strategy projects, we found that strategy making was about constructing new narratives that tie
together interpretations of the past, present and future. That is, effective projections of the future
must be connected to resonant understandings of the present and past.

For example, at the time we studied CommCorp, the company had historically pursued a
“technology push” strategy, and the job of marketing was to sell “cool technologies.” However,
some managers had begun to rethink this history, arguing that it had led CommCorp to the crisis the
company faced during the bursting of the Internet bubble. While many saw CommCorp as having
focused consistently on optical technologies for the backbone of the Internet, others argued that
CommCorp’s real history was in serving a broad set of communication needs (as indicated by its
name, “Communications Corporation”). CommCorp had primarily sold products to the telecom
carriers (such as Verizon Communications Inc.), but managers began to debate whether this
represented a deliberate choice not to serve other customers such as enterprises or whether the
narrow focus was simply due to historical habit. These questions were reflected in a variety of
interpretations of the present problems and priorities that people thought the new strategies would
address.

Constructing Strategic Narratives

To develop a new strategic direction for a company during a time of change, managers need to
create a strategic narrative that links the company’s past, present and future. Crafting a strategic
narrative involves reimagining future possibilities, rethinking the company’s past and reevaluating
present concerns.

The past, present and future were thus all interpreted and reinterpreted in the CommCorp strategy-
making process, and these interpretations were multiple, interdependent — and sometimes
conflicting. At the time we studied the company, the crash in the market for its existing products
had forced everyone at CommCorp to reevaluate the company’s historical strategic trajectory. This
questioning enabled one manager to reinterpret CommCorp’s history, not only as a provider of big-
ticket hardware for the backbone of the Internet but also as a provider of communications
technologies across the whole network. By seeing the company as all about “communications,” the
manager was able to propose a project for improving access at the “last mile” of the network. This
reinterpretation made a radical shift in a future vision possible: CommCorp could provide small-
ticket, standardized products as well as customized, high-end technologies.

New visions of the future also triggered reconsiderations of current concerns. For example, inspired
by the potential for convergence between networking and computing, one project leader was eager
to get CommCorp to move in that direction. On the other hand, he worried that convergence “steps
on everybody’s toes at CommCorp,” requiring them “to change plans across the board.” He
described this tension as “a tug of war [between] wanting to be entrepreneurial and CommCorp’s
resource limits.” The more the participants reconsidered present concerns, the greater the tensions
that arose. However, it was through such interactions that new connections were built among the
past, present and future.
A particular view of the future shaped and was shaped by certain understandings of history and
present priorities. Envisioning new futures provoked reassessments of the past and present, just as
new understandings of current concerns triggered new imaginings of the future and alternative
versions of history. Negotiating these interpretive differences proved to be central to strategy
making in practice. We refer to this activity as constructing strategic narratives that link together
efforts to re-imagine future possibilities, rethink past routines and reconsider present concerns. (See
“Constructing Strategic Narratives.”)

This work occurred in team discussions, in senior management meetings and through the
development of strategy documents in which company managers negotiated and resolved tensions
around different understandings of what had happened in the past, what was at stake in the present
and what might emerge in the future. Sometimes the debates were fast and furious, involving strong
disagreements in views. However, strategic choices were only possible if managers could settle on a
particular narrative. We found that for a narrative to guide strategic choices, it had to be coherent,
plausible and acceptable to most key stakeholders within the company. (See “How to Create a
Compelling Strategic Narrative.”) For example, the narrative one team leader constructed focused
on a radical vision of convergence as an alternative to optics (making it coherent), which was
consistent with the Advanced Technology Group’s charge to act as the “investment portfolio” for
CommCorp (making it plausible), and which would be developed on a limited budget (making it
acceptable). Narratives that fit these criteria allowed managers to shift from disagreeing or
deliberating about meanings to implementing strategic choices, thus enabling the organization to
move forward in the face of uncertainty. If a narrative is not acceptable to most key stakeholders,
then managers must continue their efforts to construct and reconstruct the narrative, drawing links
between the past, present and future in new ways.

Not all proposed strategic narratives met the criteria of being coherent, plausible and acceptable
within the organization. For example, one group at CommCorp proposed a strategic narrative that
others refused to accept, and opponents of the project suggested that that particular narrative was
implausible and did not fit coherently with corporate history. Only after the sponsors of the project
let go of their commitment to their narrative were they able to gain buy-in for their project — but
the lack of a compelling new narrative meant that the project’s strategy ended up being largely
incremental.

Work to construct strategic narratives is not easy, linear or straightforward. We found that decisions
are only reached if differences in interpretations of the past, present and future can be resolved and
constructed into a narrative. At the same time, changes in the external environment or internal
efforts to make change can lead to breakdowns in narratives. Such breakdowns then trigger more
work to construct a new narrative..

How to Create a Compelling Strategic Narrative

For a narrative to guide strategic choices within a company, it must be coherent, plausible and
acceptable to most key stakeholders in the organization.

To create a coherent strategic narrative, ask yourself:

 Does this narrative offer a view of the future that can be made consistent with
understandings of our company’s past and our concerns in the present?
 Does this narrative connect the past, present and future in ways that make sense?

To make the narrative plausible, ask yourself:


 Does this narrative address important aspects of the external environment, including market
and technological changes?
 Does it offer our company a distinctive competitive position?
 Does the narrative provide a reasonable response to competitors’ actions?
 How well does this narrative take into account our company’s existing resources and
capabilities?

To create a narrative that will be acceptable within the organization, ask yourself:

 Will this narrative bring people in the company together and reduce conflict?
 Will this narrative resonate with all — or at least most — of the key stakeholders in the
organization?

While breakdowns may ultimately lead to new agreements and new strategic decisions, they make
decisions difficult to reach in the short run. When newly constructed narratives are not deemed
coherent, plausible or acceptable, the resulting breakdowns compel managers to continue seeking
alternative connections among interpretations until they can settle on a narrative that enables the
organization to move forward. If they don’t settle on a narrative, managers have little basis upon
which to make decisions.

The more intensively managers reimagined the future, rethought the past, and reconsidered present
concerns, the more their projects produced strategies that represented radical departures for the
organization. It was not that technologies a priori represented greater or lesser change, or that new
technologies forced people in the organization to engage more intensively in constructing strategic
narratives. Rather, the evidence from CommCorp suggests that the degree of change represented by
a new technology strategy was related to the degree to which the managers in the organization
negotiated their interpretive differences to produce alternative understandings of the past, present
and future.

Implications for Executives

By using ethnographic techniques to look at how strategy actually gets made, we see that
forecasting the future is not the sterile or precise analytical process that both scholars and
executives might have hoped it would be. Drawing on our in-depth examination of strategy practice,
we offer four lessons about the messy business of making strategy.

First, making strategy is not about accurate forecasting. You must consider the multiple
interpretations of present concerns and historical trajectories that help to constitute those forecasts.
Though the future will likely not turn out the way it was projected, this does not mean that
projections do not matter. Articulating projections shapes attention, deliberation, investment and
effort.

Second, achieving an innovative future is not about forgetting the past. Some people have
suggested that new strategies require strategic “forgetting,” so that organizations are not anchored in
old ways of doing things.6 We found instead that managers need to engage directly with the past to
shape a narrative that connects a particular understanding of history to a new future direction.
Constructing new narratives is a way to achieve change while at the same time showing how the
new strategy achieves some form of continuity with a (reimagined) past. In other words, history
matters — but not in the way you might think. The past is not a singular guide to the future. In fact,
it is the multiplicity and ambiguity of experiences of the past that enable the different interpretations
that can generate innovative alternatives.
Third, strategy making is not about getting the “right” narrative. It’s about getting a narrative
that is good enough for now, so that the organization can move forward and take action in uncertain
times. This recognizes that strategy will in some ways always be evolving and “emergent.”7 Our
view of strategy making suggests that the narratives that managers construct will shape the direction
of future actions, just as those actions, in turn, will lead to further reconfiguring of the company’s
strategic narratives over time.

Fourth, breakdowns in the strategy-making process are not failures but rather opportunities
for learning and for reconfiguring the strategic narrative. Breakdowns and disagreements in the
strategy-making process create openings that can generate alternative narratives. While breakdowns
can sometimes impede progress, they can also be productive by provoking a search for new
interpretations and novel possibilities.

A model of strategy making that focuses on strategic narratives provides insights into a long-
standing puzzle about the sources of competitive advantage: Is company performance mainly
derived from luck or managerial foresight? Evidence from our field study suggests that both past
legacies and future projections shape future outcomes. Past experience can manifest itself in
routines that maintain operations effectively. But the more such routines are reproduced, the more
organizations can suffer lock-in.

Recognizing that organizations can get stuck in ruts, leaders may want to provoke breakdowns in a
company’s existing strategic narrative by challenging conventional wisdom within a company. Such
interventions would involve the construction of new strategic narratives that can prevent
organizations from getting locked into a strategy that is constrained by routinized understandings of
the past, myopic views of the present and limited visions of the future.

About the Authors

Sarah Kaplan is an associate professor of strategic management at the Rotman School of


Management at the University of Toronto. Wanda Orlikowski is the Alfred P. Sloan Professor of
Management and a professor of information technologies and organization studies at the MIT Sloan
School of Management in Cambridge, Massachusetts.